Compromise Coming? Debt Talks Take Turn

After weeks of wrangling between House Republicans and the White House, the beginnings of a bipartisan deal to raise the country’s debt ceiling and avoid a default began to percolate in the Senate.

The recently rekindled Gang of Six, a bipartisan group of senators that has been meeting since the start of the year in an effort to hatch a deficit-reduction deal, this morning presented their $3.7 trillion deficit-reduction plan to their colleagues.

The bipartisan talks, which had stalled this Spring after months, were at first intended to turn recommendations from the President’s Fiscal Commission into legislation.

Their presentation to fellow lawmkaers today was significant for its attendance alone: 50 senators -- both Republican and Democrats attended and were briefed by six senators -- Republicans Tom Coburn of Oklahoma, Saxby Chambliss of Georgia and Mike Crapo of Idaho, and Democrats Dick Durbin of Illinois, North Dakota’s Kent Conrad and Virginia’s Mark Warner.

At the White House, President Obama called the reemergence of the gang "good news.”

"I think it is a very significant step," Obama told reporters in the White House briefing room. "The framework they put forward is broadly consistent with what we've been working on at the White House."

While there was encouraging news for the bipartisan proposal in the Senate, it blew at a cross current with the “Cut, Cap and Balance” act in the House, where Republicans voted 234 - 190 to pass their plan to “Cut, Cap and Balance” the federal budget.

The House Republicans' bill would cut total spending by $111 billion in FY 2012 and caps total federal spending by creating a “glide path” that limits spending at 22.5 percent of GDP next year and gradually decreases spending levels over 10 years levels until locking in at 19.9 percent of GDP in 2021.

It would also require that Congress pass a Balanced Budget Amendment and it would need to be sent to the states for ratification before the president’s request for a $2.4 trillion debt limit increase is granted.

But that proposal is doomed to fail in the Senate, where Democrats say it will mandate draconian cuts in Medicare and Social security by capping what lawmakers can spend and forcing them to maintain a balanced budget in the future. Plus, President Obama has threatened a veto of the House Republican proposal.

House Speaker John Boehner said Tuesday that House Republicans would keep their focus on the “Cut, Cap and Balance” proposal, for now.

“The president has said now for once he wants a balanced approach. Well, guess what. In ‘Cut, Cap and Balance’ he does get a balanced approach. He gets his increase in the debt limit of $2.4 trillion. What we get are real cuts in spending and real reforms in place that'll make sure that this problem never, ever happens again,” Boehner told reporters, noting that it is the only plan that has a majority in the House.

Asked whether he is confident that lawmakers will be able to strike a deal to raise the debt ceiling ahead of the Treasury Department’s August 2 deadline, Boehner admitted that “defaulting on our debt would be irresponsible,” but contended that it would be “just as irresponsible…to increase the debt limit without taking serious action to reduce current spending and our long-term obligations.”

“It's about finding 218 votes -- a majority of the House -- to do the responsible thing,” Boehner said. “There are lots of ideas out there from Democrats and Republicans, but guess what? None of them have a majority. This [Cut, Cap and Balance] proposal has a majority. It's a responsible plan. That's why we've put it forward.”

Over in the Senate, lawmakers are expected to take up the House “Cut, Cap and Balance” proposal later this week. Meanwhile, work will continue on their own bipartisan proposal. It is not clear if House Republicans would support the bipartisan senate’s bipartisan plan after their own Republican plan fails.

The senate “Gang of Six” proposal calls for what the senators call a $500 billion down payment on cutting the deficit and moves toward the $3.7 trillion goal. There would be an increase in tax revenues by $1 trillion by closing a variety of special tax breaks and havens, which would amount to a net tax decrease of $1.5 trillion because the Alternative Minimum Tax would be repealed.

The Gang of Six is basing their $ 1 trillion tax revenues increase on the AMT being patched and extending Bush-era tax cuts for people families that make less than $250,000 per year. That could become a sticking point.

Republicans have pushed back that it the $1 trillion revenue portion should be functionally smaller and factor in the expiration of the ’01 and ’03 Bush tax cuts expire in 2013 and also include lost revenue from the Alternative Minimum Tax.

Seventy-four percent of the deficit reduction would come from spending cuts and 26 percent would come from higher revenues. There would be cuts to Medicare and outlines a congressional committees to overhaul Social Security.

While it has gained support from both parties in the senate, activists on both sides of the political divide condemned it.

"One of the areas that concerns me very much is that in the midst of all of this deficit reduction talk seemingly out of nowhere comes the idea that we must make major cuts in Social Security," Sanders said. The plan was also condemned by Moveon.org.

“When it is eventually written down in legislative language and every American can read it, taxpayers will then learn whether the ‘plan’ raises taxes or cuts taxes and seriously reduces spending or fails to mandate spending reductions,” said Norquist in a statement.

The big question is whether the plan will be considered in conjunction with the debt ceiling plan. Senators said that was not their original goal but there was a renewal of support for this plan to influence the White House negotiations with congressional leadership.

The next step: members of the Senate will be asked to sign a letter supporting the “basic direction” of the Gang of Six’s plan. There will be another meeting tomorrow with the group to discuss how he plan may be advanced.

Members of the Gang of Six did not immediately shoot down the idea that their plan could be attachedin some way to the plan being worked onto a separate, last-ditch plan being crafted by Senate Minority Leader Mitch McConnell and Senate Majority Leader Reid. That proposal would give the President carte-blanche to raise the debt ceiling over the next two years and require lawmakers to vote for or against his decision. But the lawmakers would cede much of their power; he would be able to veto any votes against.